Helping Japanese StartupsRealize their Global Potential

Allen MinerFounder and Sponsor, Global Venture HabitatFounder and General Partner, SunBridge Group www.sunbridge.com www.sunbridgepartners.comallen@sunbridge.com info@sunbridgepartners.com

SunBridge Founding Goals (2000)SunBridge Founding Goals (2000)

• Create a Dynamic Venture Habitat that combines the best features of Silicon Valley and Japan

• to influence and improve Japan’s Venture Ecosystem, helping to create

• World-class Global Ventures, and

• World-class (top-quartile) investment returns

Incubator Incubator HabitatHabitat

• The most suitable environment in which to naturally grow and thrive

• A complex ecosystem

• Intensive care, or• Mass production

                       

              

Silicon Valley Silicon Valley as Venture Habitatas Venture Habitat

•Area: 4801km2•Pop: 2.52 million•Jobs: 1.41 million•Avg. Income:$79K (vs. $50K US)

•Pop: 0.8% of US•GDP: 2.1% of US•VC: 29% of US

•18% hold graduate degrees (10% in US)

•36% are foreign-born(57% of those from Asia)

Silicon Valley Silicon Valley as Venture Habitatas Venture Habitat

日本• Favorable Rules of the Game ×→△• Knowledge Intensity →◎ ◎• Open Business Environment ○→○• High Quality → ◎ ◎

Mobile Workforce ×→△• Results-oriented Meritocracy ×→△• Climate that Rewards Risk-taking ×→×

and Tolerates Failure• Collaborations among Universities, ×→△

Business, government, NPOs• High Quality of Life →×△• Specialized Business Infrastructure ×→△

SunBridge Venture HabitatSunBridge Venture Habitat

AffiliatedAffiliatedVentureVenture

Sales & MarketingSolutions

Technology Services

IT VendorsIT VendorsIntegratorsIntegrators

ISPsISPsEnd UsersEnd Users

ConsultantsConsultantsPR FirmsPR Firms DesignersDesignersAgenciesAgencies

VCsVCs 、、 BanksBanksAccountantsAccountants

LawyersLawyersIncubatorsIncubators RecruitersRecruiters

UniversitiesUniversitiesNPOsNPOsEtc.Etc.

AffiliatedAffiliatedVentureVenture

UnrelatedUnrelatedVentureVenture

EstablishedEnterprise

Alliance

Information exchangeand collaboration

Human Resource Services

AllianceAlliance

EstablishedEnterpriseVenture

Capitaland

StrategicSupport

Information exchangeand collaboration

Industry-Industry-focusedfocused

RichRichServicesServices

High-Potential Venture Ecosystems High-Potential Venture Ecosystems Have Rich Services & Tight FocusHave Rich Services & Tight Focus

BroadBroadServicesServices

Bus. Mgt.Bus. Mgt.StrategyStrategySalesSalesMktg.Mktg.Tech.Tech.FinanceFinanceLegalLegalAcctgAcctgAdmin.Admin.FacilitiesFacilities

and Deepand Deep

OutOutSourceSource

SupportSupport

Intro.Intro.

Relevant Experience and Relevant Experience and Industry FocusIndustry Focus

Added Value of

Added Value of

The Ecosystem

The Ecosystem

(or Incubator)

(or Incubator)

All All IndustriesIndustries

FewFewServicesServices

NoneNone NarrowNarrow

Why Why Japan?Japan?

Tokyo and Osaka as Tokyo and Osaka as leaders of the “Spiky World”leaders of the “Spiky World”

• #1 and #9: World’s largest metropolitan areas

• Fortune 500 Headquarters#1 Tokyo: 51#8 Osaka: 7

• Global patent leaders

• Leading per capita GDP

Japan is a Technology SuperpowerJapan is a Technology SuperpowerContrary to popular myths, in Japan, as everywhere else, innovation is driven by individual ‘heroes’ – not by industry associations or government. Increasingly, these ‘heroes’ are innovating in entrepreneurial settings rather than corporate or government laboratories.

•Creators of next-generation IT•Consumer lifestyle IT (not enterprise-productivity) drives global tech innovation and growth today

•and an endless list of key enabling component technologies

•A rich technology ecosystem•World-class talent in corporate labs

•DISPROPORTIANTELY IN KANSAI!

(Source: Eurostat, OECD)

R&D Intensity (%)

R&D IntensityAAGR (%)

R&D Intensity (R&D expenditure as a % of GDP) in 2004 and average annual growth rate (AAGR) of R&D Intensity (’99-’04)

Japan R&DInvestment: 3.3% and growing

2004 patentsJapan: 342,726 vs. US: 167,183

0 10 20 30 40

Tokyo 1stExchange

Jasdaq

Mothers,Hercules

Median Years from Company formation to IPOby Exchange (2002 - 6/2005)

(Source: Asia Shoken Publishing,IPO no Sekai)

Mothers andHercules IPOs2002 322003 382004 722005 59

Japan’s entreprenurial Habitat Has Japan’s entreprenurial Habitat Has Undergone Dramatic ImprovementUndergone Dramatic Improvement

From the perspective of entrepreneurs starting companies and the Venture firms backing them, Japan’s regulatory environment, capital markets, labor mobility and social attitudes have changed so dramatically in the past 6 or 7 years as to be nearly unrecognizable to someone who’s knowledge of Japan is rooted in the common sense of the 1980s bubble era or 1990s lost decade.

2000-04 Dramatic structural change

•Commercial code and IPO rule changes

•Shift in domestic VC focus from very late stage to very early stage

•University TLOs, spinouts encouraged

•Restructurings, Layoffs- end of lifetime employment

2004-6 Recovery•Economy, Nikkei•Emergence of

“Serial Entrepreneurs”2008-09 Collapse of IPO markets- J-Sox, Global Financial Crisis

Over 20,000 1-yen companies registered in first two years after regulation changes allowed them.

Quicker exitson new markets. Better IRRsfor VCs & LPs

New access toWorld-class R&D

Dramatic regulatory changes

0

50

100

150

200

250

300

1880

1890

1900

1910

1920

1930

1940

1950

1960

1970

1980

1990

Founding year of Japanese PublicCompanies

1/3 (599) were formedin the 1948-53 GHQera of dramatic socialchange and economicrecov ery

Top 5 Waseda 65Osaka 46Keio 43Kyoto 37Tokyo 33

EntrepreneurialRenaissance?

Where High Growth Companies areWhere High Growth Companies areBeing Formed TodayBeing Formed Today

Because of the world-famous examples of such companies as Oracle, Cisco, Google, and Salesforce.com, it is widely believed that Silicon Valley creates more high-growth companies than any other region in the world. It may create the biggest and most famous but Tokyo actually produces more.

Number of public companies formed after 1997 which had sales greater than $50M in 2007 and three consecutive years of growth above 50% from 2005-2007.

(source: SunBridge analysis of Bloomberg data)

By Country:China 27US 22Japan 12India 10

By Region:Tokyo 10Silicon Valley 6Shanghai 4

Top Quartile Vintage 2000 VC Funds (IRR)

49.50%

8.45%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

SunBridge

Average Top Quartile

Top Quartile Vintage 2001 VC Funds (IRR)

10.4%

8.1%

0% 2% 4% 6% 8% 10% 12%

Equitek

Average Top Quartile

Top Quartile Vintage 2002 VC Funds (IRR)

24.3%

6.8%

0% 5% 10% 15% 20% 25%

SunBridge 2002

Average Top Quartile

3.9x net to date

1.3x net to date

1.3x net to date

SunBridge Results to dateSunBridge Results to date•Founded 1999 by former Oracle Japan

execs•Team of 150+ VC and Service

Professionals•44 Japanese, 19 US companies in

portfolio•Key Successes:

•High success ratio (7 IPOs to date)•Repeated Japan Market Entry

successes• Industry-leading VC investment

returns•#40 on 2007 Forbes “Midas List”•Reputation for value above and

beyond capital

IT Media

Japan

Top 20 2004 IPOs (US and Japan, by Initial Market Cap., $Ms)

$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000

GoogleSMIC

DreamWorks AnimationCabela's

Salesforce.comEyeTech Pharmaceuticals

Bill Barrett CorpShanda Interactive Entertainment

NetPrice (#1 in Japan)Shicoh Engineering (#2 in Japan)

InPhonicLipman Electronic Engineering

Archipelago HoldingsMCJ (#3 in Japan)

Kanbay InternationalAtheros Communications

Macromill (#4 in Japan)Fujipream (#5 in Japan)

Shopping.comDipping (#6 in Japan)

Top 20 Venture-Backed Acquisitions 2001 to 2005 ($Ms)

$843$805

$775$665

$625$550

$527$525$525

$501$486

$466$450

$421$415

$400$385

$370$355

$0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000

Skype, 3Q05Antero Resources, 2Q05

Flarion, 3Q05Seisint, 3Q04

Hotwire.com, 4Q03VMWare, 1Q04

VxTel, 1Q01Angiosyn, 2Q05Shopzilla, 2Q05

Lynk Systems, 3Q04Interactive Search, 2Q04

ESP Pharma, 1Q05Catena Networks, 2Q04

Airespace, 1Q05Amber Networks, 3Q01

Viva Inc, 1Q05LightLogic, 2Q01TradeWeb, 2Q04Brightmail, 2Q04

Ocular Networks, 1Q02

Shicoh

How Am I doing on My Goals?How Am I doing on My Goals?

A Dynamic Venture Habitat that borrows best practices from both Silicon Valley and Japan

to influence and improve Japan’s Venture Ecosystem, helping to create

World-class Global Ventures, and

World-class (top-quartile) investment returns

×

Why did I move back to Why did I move back to Silicon Valley?Silicon Valley?

• To help Japanese startups go global• Domestically oriented, IPO-focused

startups– Japanese markets are big enough to support creation of substantial domestic businesses

–Excessive focus on IPO as a goal and pressure to go public too quickly

–Public market expectations preclude investment in rapid growth

–Result: higher probability of smaller successes

• Lack of recent globalization success stories–Most Japanese VCs and entrepreneurs lack the skills and network to create global companies

–Most common causes of failure – Wrong leader, underinvestment.

Why I Chose to Locate in Plug & Play ?Why I Chose to Locate in Plug & Play ?

• The most active, dynamic hub for startup activity and related industry interaction in Silicon Valley.

• Continuous flow of local and international visitors that provides high-value networking opportunities

• Enough capacity to host multiple Japanese market entrants

More Japanese companies in Silicon More Japanese companies in Silicon Valley than from any other countryValley than from any other country

Change BringsChange BringsOpportunity Opportunity (For Osaka)(For Osaka)

Footnote:Footnote:

Industry Focus of Silicon ValleyIndustry Focus of Silicon Valley

Through the 1950s, Silicon Valley was the 10th largest AGRICUTURAL region in the US.

Industry Focus of Silicon ValleyIndustry Focus of Silicon Valley

Today, employment is concentrated (about 30%) in IT and Venture services

Silicon Valley – Now attempting to lead Silicon Valley – Now attempting to lead the Next Big Thing – “Cleantech”the Next Big Thing – “Cleantech”

Battling for Global Battling for Global CleanTech leadershipCleanTech leadership

Shouldn’t this industry be emerging in the greater Osaka area instead?•Tradition of energy efficiency

•Leadership in•Photovoltaics

•Batteries•LED lighting•Advanced Materials, etc.

More Japanese companies in Silicon More Japanese companies in Silicon Valley than from any other countryValley than from any other country